Suppose you observe the following spot quotes for Canadian dollars and pounds. What is the maximum profit you could earn (in terms of Canadian dollars) via locational arbitrage if you have C$10,000,000 at your disposal? Round intermediate steps to four decimals and your final answer to two decimals. Do not use currency symbols or words when entering your answer.

Bank X: C$1.1155-65

Bank Y: £.8890-92 

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Which of the following will occur to prevent the arbitrage profits you found in the previous question? O The ask quote for pounds in terms of Canadian dollars will decrease at Bank X. O The bid quote for pounds in terms of Canadian dollars will decrease at Bank Y. O The bid quote for pounds in terms of Canadian dollars will increase at Bank Y. O No changes are necessary since locational arbitrage is not possible. QUESTION 7 Suppose you observe that the spot rate between yen and euros on 3/1/2018 was ¥120/€ and on 4/1/2018 the spot rate was ¥125/€. According to relative PPP, which of the following is true? O Expected inflation in both nations was constant. O Expected inflation rose faster in the Eurozone than in Japan. O Expected inflation rose faster in Japan than in the Eurozone. O Relative PPP assumes there is no relationship between changes in the spot rate and differences in expected inflation between nations. Which of the following will occur to prevent the arbitrage profits you found in the previous question? O The ask quote for pounds in terms of Canadian dollars will decrease at Bank X. O The bid quote for pounds in terms of Canadian dollars will decrease at Bank Y. O The bid quote for pounds in terms of Canadian dollars will increase at Bank Y. O No changes are necessary since locational arbitrage is not possible. QUESTION 7 Suppose you observe that the spot rate between yen and euros on 3/1/2018 was ¥120/€ and on 4/1/2018 the spot rate was ¥125/€. According to relative PPP, which of the following is true? O Expected inflation in both nations was constant. O Expected inflation rose faster in the Eurozone than in Japan. O Expected inflation rose faster in Japan than in the Eurozone. O Relative PPP assumes there is no relationship between changes in the spot rate and differences in expected inflation between nations.

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Q6The bid quote for pounds in t... View the full answer